***MORNING EVERYONE**** I hope you doing well; winter is right at the door step so keep yourselves warm and take vitamin C. Today we focus at Elements of Short-Term Finance, please LIKE the post and comment as this will help me to keep record of active students on my page be able to give them the attention they deserve. ELEMENTS OF SHORT TERM FINANCE Short-term finance is strongly associated with working capital requirements and the seasonality which frequently accompanies business operations. 1. TRADE CREDITORS: Every business choose to use some trade as it often seems to be without cost. Indeed, in practice most suppliers will offer credit terms ranging from between 30 and 90 days. If these credit terms are offered on a basis which does not offer early settlement discounts or price reductions if shorter settlement periods are agreed, then they are in fact cost less, in that no benefit is foregone by making maximum use of trade credit. 2. BANK OVERDRAFTS: The most attractive aspects of bank overdrafts is convenience. It enables a company to have finance available immediately it is needed and to incur no interest penalty during times when it is liquid. Overdrafts facilities must be arranged with the bank and the overdraft rate negotiated. Overdraft rates are very sensitive to risk and the absence of guarantees to the bank will result in high overdraft interest rate. 3. ACCOUNTS RECEIVABLE FACTORING: Factoring is the process for handing accounts receivable to a third party for collection in return for a substantial portion of the debts due. The benefit of this service must be weighed against the urgency for liquidity as it is generally a relatively costly method. The advantages of having an expect billing and collection service has high value for small and medium size business which may not have the technology to administer their debtors. Apart from the administration fee, the finance rate is generally linked to the bank overdraft rate. 4. MONEY MARKETS: They play an essential role in satisfying short-term financing needs. This need arises most frequently as a result of the cyclical or seasonal nature of many businesses. The money markets create the opportunity for short-term borrowing and short-term investment of surplus cash.
Posted on: Thu, 03 Apr 2014 07:08:17 +0000
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